Sep 19, 2023
As marketers, we are often keenly aware of why our company needs a digital transformation. And while more than half of these types of projects are delayed or turn out more expensive than expected, digitisation nevertheless remains a priority for many CFOs due to the fact that there is a clear need for the change. If the management, however, still remains unconvinced, then find out what you need to make an effective business case to persuade your CFO of the value of a digital transformation.
CFOs recognise potential impact
Many organisations view digital transformation projects with both enthusiasm and caution. There is a sense of distrust in respect of major IT projects that often take too long, frequently exceed their budgets and distract from the core business. Nevertheless, many CFOs and other senior executives also recognise the potential impact of digitisation on the business model.
Anyone who embarks on a transformation project of considerable scale wants to have clarity on their Return on Investment (ROI). However, for a CFO, marketing IT is often a black box in relation to which they have no clue what exactly is going on. A solid business case for digital transformation in which the basic principles of the process are set out in a clear and comprehensible manner helps support the value of the investments and persuade stakeholders.
A holistic business case gets everyone on board and leads to a transformation that impacts the entire organisation actually getting off the ground. The key elements of a business case of this type includes an assessment of the various types of costs, investments, scenarios and benefits involved.
Starting from a good business case
A good business case should clearly identify and quantify the potential benefits of digital transformation. These benefits can be classified into hard and soft benefits. Hard benefits refer to tangible, easily quantifiable effects, such as cost savings, revenue growth, improved process efficiency, increased conversion and a faster time-to-market. These effects demonstrate exactly what they do to cost savings or revenue growth.
Soft benefits, by contrast, relate to brand consistency, an improved customer experience, competitive advantage and higher quality content. The latter type of benefits are less easy to quantify due to the fact that such measurements are frequently not available, but are just as crucial to the success and competitiveness of an organisation as the former. It is these soft
benefits that are often very interesting to marketers, whereas CFOs are more likely to be convinced by hard benefits. A good business case bridges the gap between the two disciplines
and should also consider any potential risks in the planning any digital transformation. The business case, for example, should take into account any technological limitations, resistance to change, privacy and data security. Understanding these risks and drawing up measures to mitigate risks are essential aspects.
What are the costs and what information is needed?
Although this component might sound obvious, we often see that business cases do not show all the various costs involved. When putting together a business case, it is vital to provide insight into all the various types of costs involved, such as one-off costs, on the one hand, which include the purchase of new technologies, training costs, implementation costs and any depreciation, and (annually) recurring costs, such as licence costs, maintenance, support, innovation and any personnel costs, on the other.
Make sure to add all the various costs or clearly set out which costs have not been listed. This will give management an overall picture of the costs and complexity involved in the process.
Establish who wants to measure what and why
Once you enter a transformation process, we highly recommend establishing Key Performance Indicators (KPIs) at an early stage in the process. Make sure that these KPIs are actually measured and reported during the project, which will allow you to monitor the progress of the project and make adjustments where necessary. Ensure that each discipline within the organisation draws up its own, preferably isolated, KPIs and validate the aims in advance with all stakeholders involved.
You should also establish a responsibility matrix, which includes the departments involved in the transformation, such as IT, marketing, sales, finance and logistics, as well as the individuals who contribute to each specific phase in each department. This will allow you to manage information provision, responsibilities as well as expected time requirement. In the event that you are orchestrating a transformation process from head office at a distance, then make sure to get the key decision makers in each country on side beforehand and establish what contributions and returns they are expected to make and gain respectively.
Impact on business strategy
Ensure that stakeholders understand how technology can advance the business strategy as a whole. For example, is it clear which business goals and benefits the project supports? This will include growth, retention, differentiation or transparency or operational efficiency, for example. You should also take into account the mid-term returns to gain a more strategic view of the potential benefits.
This will also involve considering other indicators than merely the ROI, such as internal improvements to productivity and the satisfaction of your employees, and what that means for the organisation - and even the flexibility of your employees and the speed of digital adoption. Externally-based metrics, for example, relate to a better customer experience or a shorter time-to-market.
Ideally, a business case will be based on a roadmap that splits the transformation up into a number of steps. The associated costs and returns should be set out clearly for each step. When considered all together, they should provide an expected total return.
You should therefore create a timeline for the CFO in which what type of return is expected for each step is clearly set out. At what point will the most significant costs be incurred, when will we start experiencing the benefits of the returns and at what point do we expected to break even? Ultimately, what is the net value of the initiative at each given moment?
You should also visualise the alternative: what would the cost be of failing to implement the transformation? What are the ‘costs of doing nothing’? What would we be missing out on if we didn’t do it? What would it mean for the organisation if we were unable to solve problems or resolve inefficiencies? Any final decision will be made easier by attaching a cost and a return.
Ideal scenario: a ROI of two to three years
In an ideal scenario, the total costs of the digital transformation are covered by tangible, hard benefits within two to three years. A positive ROI in the short term will increase the feasibility and credibility of the project.
In addition, a percentage of the costs could be capitalised and written off, in order to spread the financial pressure on annual budgets across a longer period of time. If the financial impact of the investment can be calculated, you should likewise review how the projects relate to one another and prioritise projects with the greatest financial impact.
It is vital that you make realistic estimates of the costs and benefits involved and to consider different scenarios and assumptions. However, companies will often not have these figures readily available for such analyses. In that case, a comparison with other parties in the industry can suffice to provide direction or as a control mechanism.
Clear communication about the expected returns
Several elements can impact the return, speed and the effectiveness of the transformation. For example, which business and marketing ambitions have priority? What is the current state of the digital landscape of the organisation? Does the management support the transformation and are any internal employees on hand to support the transformation?
Consistent communication with stakeholders is likewise crucial and this not only relates to tracking performance, but to keeping stakeholders informed of the progress of the project, celebrating any milestones achieved and ensuring continuous engagement and support.
Maintaining ongoing engagement is difficult, especially within digital organisations where transformations have the greatest impact. These companies often have rapid processes and short attention spans, which run counter to the patience required for transformations. Long- term investments are sometimes difficult to justify because of that need for immediate relevance.
The biggest challenge of these kinds of transformation projects therefore is to be able to persevere. Transformation does not happen automatically and results will not always be immediately tangible at the start. This makes you particularly vulnerable at the beginning of the process. As a result, you should reflect on how you intend to keep stakeholders satisfied and engaged beforehand. How do you intend to consistently persuade stakeholders and how do you define progress?
The business case as a roadmap for success
A well-thought-out business case for a digital transformation is an essential tool to getting enough support and resources to realise your digital aims. The five key steps:
Define the objective and the KPIs with a broad range of stakeholders.
Have a thorough understanding of the impact of IT on the organisation: look beyond
Examine the hidden value of existing technologies, talents and working practices and
use that as a starting point.
Establish priorities, allocate sufficient and appropriate resources and put together the
right team. Ensure your goals and resources are in proportion to one another.
Monitor performance and ROI regularly and adjust your KPIs as needed
About the author: Marco Fredriksen is a Founding partner & digital accelerator at FULL FORCE DIGITAL.
This article was originally published by Emerce.nl (in Dutch)
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